Can contractors get a 95% mortgage under government schemes?

Navigating the mortgage market as a contractor can be complex due to the variable nature of income. While government initiatives like the Mortgage Guarantee Scheme (MGS) significantly increase the availability of 95% Loan-to-Value (LTV) mortgages, contractors are not automatically excluded, but they must meet stringent affordability and income stability tests set by individual lenders. Success often depends on demonstrating a consistent work history and using specialist mortgage brokers familiar with contractor financing models.

Can Contractors Get a 95% Mortgage Under Government Schemes?

The journey to homeownership often requires applicants to secure a high Loan-to-Value (LTV) mortgage, meaning they only need a small deposit—typically 5% for a 95% mortgage. For standard employed applicants, accessing these products, especially those supported by government schemes, is generally straightforward, provided they meet credit and affordability checks.

However, when asking, can contractors get a 95% mortgage under government schemes?, the answer is nuanced. While the schemes themselves do not discriminate against employment type, the inherent challenge lies in how lenders assess the income and long-term stability of a contractor, who is often classified as self-employed.

The key for contractors is understanding which schemes are currently operating and how to present their income in the most favourable light to specialist lenders who understand complex income streams.

Understanding the UK Government’s 95% Mortgage Schemes

The primary mechanism supporting the availability of 95% LTV mortgages in the UK is the Mortgage Guarantee Scheme (MGS). This scheme, introduced by the government, aims to reduce the risk associated with lending at high LTVs for mortgage providers.

The Mortgage Guarantee Scheme (MGS)

The MGS operates by offering a partial guarantee to lenders on mortgages where the borrower only has a 5% deposit. This guarantee covers the portion of the loan between 80% and 95% LTV. This security encourages lenders to offer these products more widely, increasing competition and access for buyers.

It is vital to understand that the MGS does not alter the lender’s core affordability assessment criteria. The scheme helps the lender manage their risk, but the borrower still must satisfy the lender that they can comfortably afford the repayments over the mortgage term.

Key features of the MGS relevant to contractors:

• Eligibility: Open to first-time buyers and existing homeowners purchasing a main residential property (not buy-to-let).
• Loan Cap: Applies to mortgages up to £600,000.
• Affordability: Lenders must conduct rigorous affordability checks in line with Financial Conduct Authority (FCA) requirements.

You can find official information on government support for mortgages and housing schemes on the UK Government’s website to ensure you meet general eligibility criteria: Visit GOV.UK for housing scheme details.

Contractor Status: The Main Hurdle for High LTV Lending

For lenders, the biggest concern with a 95% mortgage is the increased risk of negative equity if property values fall shortly after purchase. Lenders therefore require maximum confidence in the borrower’s ability to maintain payments. This is where contractors face greater scrutiny than traditional employees.

How Lenders Assess Contractor Income

Contractors typically fall into one of two categories for mortgage assessment purposes:

1. Day Rate Contractors:

If you work under a specific contract, paid a fixed day rate (often operating via an umbrella company or personally), many specialist lenders are willing to calculate your annual income based on your day rate multiplied by the number of working days per year (typically 220 to 240 days). This approach often yields a higher, more representative income figure than relying solely on retained company profits.

• Requirement: Usually requires 6 to 12 months of continuous contracting history and proof that the current contract has a remaining minimum duration (e.g., 3-6 months), or a strong history of extensions.

2. Limited Company Directors/Contractors:

If you run your own Limited Company and pay yourself through a small salary and dividends, traditional high street lenders often only assess the salary and dividends taken, which can drastically reduce the perceived affordability. This is particularly problematic when seeking a high LTV product.

• Requirement: Specialist contractor lenders are crucial here, as they may consider the company’s net pre-tax profit or salary plus retained earnings, provided the business is well-established (usually 2–3 years of accounts).

If a lender calculates your income too conservatively, you may fail the affordability check required for the 95% LTV product, regardless of the government guarantee scheme backing the loan.

Meeting Affordability Criteria as a Contractor

To successfully secure a 95% mortgage, contractors must present an exceptionally clean application portfolio demonstrating both income stability and financial prudence.

Required Documentation and Income Evidence

While the exact documents vary by lender, contractors should prepare the following to support their application:

• Copies of all current and previous contracts, demonstrating a clear history of consecutive work (typically 12–24 months).
• Bank statements (personal and business, if applicable) showing receipt of day rates or contract payments.
• Current CV detailing recent assignments and professional experience, reinforcing marketability.
• If operating via a Limited Company, 2–3 years of certified company accounts and personal tax returns (SA302s/Tax Year Overviews).

The Importance of Credit History

Lenders providing 95% mortgages are taking on a higher level of risk, and therefore, credit scoring becomes paramount. Any defaults, County Court Judgements (CCJs), or significant late payments will likely disqualify a borrower from the most competitive high LTV products.

Before making an application, contractors should rigorously review their credit file to identify and correct any errors.

Accessing accurate information about your financial standing is essential for a smooth application process. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

Utilising Specialist Mortgage Brokers

Generalist high street banks may struggle to properly assess the income of a contractor, particularly if they are not using PAYE. A specialist mortgage broker dealing specifically with contractors and complex income streams is often the difference between rejection and acceptance for a 95% LTV product.

A specialist broker knows:

• Which lenders accept day rates calculations rather than focusing only on dividends.
• The minimum history of continuous contracts required by each specific lender.
• How to package the application to highlight stability and professional seniority, offsetting perceived risk.

Other Government Schemes Contractors Should Consider

While the Mortgage Guarantee Scheme facilitates 95% lending generally, contractors might also be able to utilise other government-supported routes that help reduce the required deposit or improve affordability.

Lifetime ISA (LISA)

If you are a first-time buyer contractor under the age of 40, a Lifetime ISA offers a government bonus of 25% on contributions, up to £1,000 per tax year. This bonus effectively helps contractors build up the required 5% deposit faster, making the 95% mortgage more accessible financially.

Shared Ownership

Shared Ownership schemes allow buyers to purchase a share of a property (typically 25% to 75%) and rent the remainder from a housing association. This significantly reduces the total deposit required and the size of the mortgage needed, making it a viable alternative if obtaining a full 95% LTV mortgage proves too difficult due to income complexity.

Contractors seeking Shared Ownership will still need to demonstrate affordability for the mortgage portion and the rent, but the overall income threshold required is lower than for outright purchase.

People also asked

Can I use my day rate instead of annual accounts for a 95% mortgage?

Yes, many specialist lenders and some high street providers will assess your income based on your current day rate, typically calculating 46 to 48 working weeks per year. However, they will require proof of a strong contracting history, often 12 months or more, to demonstrate stability and continuity of employment.

How much deposit do I need if I am a new contractor?

New contractors (those with less than 6–12 months of history) may find it extremely challenging to secure a 95% mortgage. Lenders typically require stability. If you are newly contracting, you may need a larger deposit (10%–15%) or a guarantor to satisfy risk criteria.

Are 95% mortgages more expensive for contractors?

The Mortgage Guarantee Scheme fixes the guarantee element for the lender, but 95% LTV products generally carry higher interest rates than 85% or 90% LTV products, reflecting the increased risk. If a contractor is forced to use a highly specialist lender due to unusual income structures, they may find rates slightly less competitive than a salaried employee accessing the mass market products.

What is the minimum contract length required for a mortgage application?

Most lenders require that the contractor is either on their second or third contract, proving continuity, or that the current contract has a minimum of 3 to 6 months remaining upon application, with a strong likelihood of extension or subsequent contract lined up.

Does using an umbrella company simplify the mortgage process?

Using an umbrella company can sometimes simplify the income verification process, as the umbrella company issues payslips showing a regular PAYE salary. This sometimes allows the contractor to be assessed similarly to a traditional employed individual by less specialist lenders, potentially making 95% mortgages more accessible, though lenders will still scrutinise the underlying contract.

Conclusion

For UK contractors, accessing a 95% mortgage under government schemes like the Mortgage Guarantee Scheme is achievable, but it requires a proactive and well-documented approach. The government schemes successfully increase the availability of high LTV products; however, they do not circumvent the need for contractors to prove robust, sustainable affordability.

The deciding factors for approval will always be the contractor’s ability to clearly evidence a consistent work history, a high level of professional demand, and clean credit reports. By engaging with specialist brokers who understand how to calculate contractor income effectively and by preparing documentation meticulously, contractors can successfully navigate the process and secure their 95% home financing.